With the downturn in freight volumes and the increased leverage that this affords shippers, many companies are conducting freight bids to seek lower rates. Some are encountering a nasty surprise. The rates proposed by their carriers are higher than their current rates. Why is this happening? What can your company do to prevent a freight RFP backfire?

If you Get Greedy, watch out for a Nasty Surpirse

In what is perceived to be a “foolproof” environment to reduce freight costs, some freight costs are actually going up. Here is why this is occurring. For the past few years, some shippers have been pressuring their carriers into lower rates. In some cases their rates are below market levels. Some shippers get “greedy” figuring that they can go back to the well one more time with a freight bid to take their rates down another notch.
The carrier then receives the freight bid, puts the commodities, shipping volumes and lanes through their costing model and finds out that they can no longer afford to handle this freight at the current rates. This results in their Pricing Department issuing a new quote with higher rates than the shipper is presently paying. The dismayed shipper then pays the penalty for a freight bid backfire as his rates go up.

Protect your Company by Benchmarking Your Freight Rates

To prevent this from happening to your company, this is what you can do. Before conducting your freight bid, perform a benchmarking study. This can be done in a couple of ways. Informally this can be undertaken by meeting with several new and existing carriers and talking to them about your proposed plan. Listen carefully to the feedback that you receive. Find out from them if they can do anything more on price. Is there anything you can do (e.g. leverage your inbound and outbound freight, reduce your number of core carriers) that can make your existing freight program of greater interest to them.
On a more formal basis, conduct a freight rate benchmarking exercise. Utilize a freight rate benchmarking service to see how your freight rates stack up against other companies with similar volumes on the same lanes. If you find out that you have very competitive pricing, lay low. If there is an opportunity to reduce costs, prepare a high quality bid package and go to the market. This will allow your carriers to provide detailed and accurate pricing. By taking these steps your company can avoid having a freight bid backfire.